Security a Is Estimated to Be Linearly Related to Four

question 21

Multiple Choice

Security A is estimated to be linearly related to four risk factors: F₁,F₂,F₃,and F₄ such that its required rate of return can be expressed as ER_(A) = m_o + n₁F₁ + n₂F₂ + n₃F₃ + n₄F₄,where m_o is the risk-free rate.If the risk-free rate is 5.5 %,what is the required rate of return of Security A,where n₁,n₂,n₃,and n₄ are 0.3,0.6,0.9,and 0.12,respectively,and F₁,F₂,F₃,and F₄ are 6 %,7 %,10 %,and 8 %,respectively?

• A) 19.22%
• B) 21.46%
• C) 22.90%
• D) 27.11%

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Definitions:

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